Gerard Lyons, chief economist at Standard Chartered, said Asia was the main recipient of western capital, but there was also evidence of speculative activity in Latin America, Eastern Europe and Africa.

A combination of a prolonged period of low interest rates in the west and strong growth in emerging markets meant the money would continue to flow in. “The size of the flows could become more significant,” he added. “There is a significant risk, even though it is a consequence of economic success.”

The report noted that many countries did not have the capacity to absorb the capital inflows, with the result that the money boosted share and property prices, adding to inflationary pressures.

“The longer it takes to address this, the bigger the problem will be. Just as excess liquidity contributed to problems in the western developed economies ahead of the financial crisis, excess liquidity has the potential to cause fresh economic and financial problems across the emerging world.”

Massive flows of capital from emerging economies, especially those in Asia, helped to inflate the asset bubbles in the west that led to the financial crash of 2007. Standard Chartered said global liquidity flows had now reversed, with emerging economies now on the receiving end. Recipients included countries with current account surpluses such as China, and those running current account deficits such as Vietnam and India.

Lyons said China was the emerging economy investors were looking at for signs of trouble. “China is not a bubble economy but it is an economy with bubbles.” But he added that the problem was not confined to Asia, and that hedge funds were now looking at “frontier markets” in Africa.

While emerging markets needed foreign direct investment to help them grow, Standard Chartered said the influx of hot money was a big worry. “Although hot money is regarded as temporary, it persists until the incentive to speculate is eliminated.”

He was one of those that called the credit crisis of 2008 about right, like Robert Schiller. So he is no nutter.

With escalating prices in a recession and prices expected to fly because economic recovery is strong, S’poreans should remember what he said, When people can no longer handle the debt, or when the debt stops growing, prices will come down, and we will face the same deleveraging crisis as in America.

Reading this, I think I can understand the thinking of CapitaLand and other China property bulls. “Everyone agrees China is in the middle of a spectacular real estate boom. The question is whether it is in the middle of a rapidly growing real estate bubble.”

There’s serious money to be made in the short-term.

And a very reputable economist and China watcher, Nicholas R. Lardy at the Peterson Institute for International Economics in Washington, say the housing boom is being propelled by a huge urbanization push that is creating premium-priced houses. He is not the only economist to say this. And CapLand said this yesterday.

So if China is a core market, you really don’t have a choice. You got to double, triple yr bets, and pray hard that you get out in time.